Dividend investing has momentum and room to grow — possibly even faster than earnings this year — despite low payout ratios as companies hoard cash, Chris Leavy, BlackRock CIO, told CNBC Thursday. Leavy, who advises on BlackRock’s $275 billion in actively managed equities, attributes his optimism to three things: inflows of only $22 billion last year, compared with more than $100 billion for the past three years for bonds; companies making 12 to 14 times earnings and paying out reasonable dividends; and the growing number of investors dissatisfied with the low interest rate on their savings.
Leavy said a reasonable dividend means you don’t necessarily have to reach for the highest yields possible. “You want an above-average dividend yield, but you really want to focus on dividend growth,” Leavy said. “Most people are going to have a very long retirement. [With] a fixed coupon … that purchasing power isn’t going to grow.” He also advises investors to avoid companies with over-leveraged balance sheets. Leavy’s top picks include global consumer companies like Coca-Cola. Investors “can ride the growth of the middle class in some of the emerging economies,” he said.